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What do beneficiaries need to know about estate insolvency?

On Behalf of | Jan 15, 2025 | Estate Administration, Heirs & Beneficiaries |

Coping with the loss of a family member or close friend is challenging, and handling their estate can add to the stress. The situation becomes particularly complicated when their loved one’s assets are not enough to pay off all debts and fulfill the bequests outlined in their will.

This scenario, referred to as estate insolvency, can significantly impact beneficiaries. For those named in a will or trust in New Jersey, it’s essential to grasp the concept of estate insolvency to set realistic expectations and be aware of your legal rights.

Understanding the priority of claims

New Jersey law establishes a specific order for paying claims against an insolvent estate. This order determines who gets paid when there aren’t enough assets to cover all debts:

  • Funeral costs
  • Expenses for managing the estate, including executor fees and legal costs
  • Any debts for services rendered by the Office of the Public Guardian for Elderly Adults:
  • Any debts and taxes given preference under federal or state law.
  • Unpaid hospital stays, doctor visits and medications from the deceased’s final illness
  • Any debts from lawsuits the deceased person lost before death.
  • Any remaining debts or bills

Unfortunately, beneficiaries named in a will stand last in line for payment. In an insolvent estate, beneficiaries often receive less than the deceased intended – or sometimes nothing at all. This process, known as abatement, reduces or eliminates bequests to pay higher-priority claims.

Knowing your rights

Even if the estate is insolvent, beneficiaries still have the right to:

  • Access information about the estate’s financial condition, including the ability to view the will and receive regular updates on how the estate’s management
  • Receive a comprehensive list detailing the estate’s possessions, outstanding debts and distribution of assets
  • Challenge an executor’s actions in court, especially if you have grounds to believe they mismanaged the estate

Knowing these rights is crucial when dealing with an insolvent estate. While you might not get everything you were expecting from the estate, being aware of your rights helps ensure you’re treated fairly in a difficult situation. If you are uncertain about your rights or how to exercise them, professional legal counsel may be necessary to guide you through the process.

Clarity is crucial when dealing with an insolvent estate

The complexities of insolvent estates can be daunting. If you’re struggling to understand your rights or the estate settlement process, consider reaching out to an estate attorney.

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